Lawyers for J. Ezra Merkin and New York University were back in court yesterday, exchanging fighting words in a case stemming from the Bernard Madoff scandal.

NYU, which says it lost $24 million it invested with Merkin’s hedge funds in Madoff’s alleged $50 billion Ponzi scheme, accused Merkin of “deliberate ignorance” at a hearing in New York State Supreme Court. Merkin’s attorneys shot back that the university has no case.

At issue are the temporary restraining order won by NYU that prevents Merkin from liquidating his Ariel Fund, a Madoff feeder vehicle, and Merkin’s motion to have NYU’s lawsuit against him and his funds dismissed. NYU sued Merkin, Ariel and Gabriel Capital Corp. in December, alleging that Merkin invested its money with Madoff without consent.

“He engaged in deliberate ignorance in order to line his pocket; that’s what he did wrong,” Beth Kaswan, a lawyer for the school, told the court. She said that Merkin had been warned by a partner, Victor Teicher, that “the Madoff returns smelled, and they were not probable,” and that trading statements had been “altered.”

Merkin’s lawyers, who have painted their client as a victim of the Madoff scam, would have none of it.

“The essence of this case is bare displeasure,” Andrew Levander said. “I understand that they are upset, but that doesn’t mean they have a cause of action.”

Kaswan said that Madoff took the warning from Teicher—who was convicted of insider trading in 1990—to Madoff, who denied anything was afoot. In court papers filed last week, NYU says that Teicher, who was also barred from the securities industry, actually advised Merkin on managing the Ariel fund while in prison.

“Victor Teicher, a convicted felon, and his staff were the persons actively managing the majority of the Ariel assets, and that hundreds of millions of dollars of Ariel’s funds had also been delivered for management to Madoff—even though Teicher had warned Merkin than Madoff’s returns were not possible.”

Merkin’s lawyers denied that Teicher had done any work for their client from prison.

Justice Richard Lowe did not make an immediate ruling, saying he would offer one “as soon as I can.”

Last week, Merkin said Ariel and Gabriel each lost more than 40% in the fourth quarter, mostly due to their exposure to Madoff.

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